News

Government raises cap on retirement funds to £2.3m

TENS of thousands of investors who feared they would fall foul of the lifetime cap on pension funds have been thrown a lifeline by the government after it in effect raised the limit from £1.5m to £2.3m, writes David Budworth.

From April 2006, savers whose pension schemes breach the lifetime limit will be taxed at an effective rate of 55% on the surplus. For someone with a £2m pension fund that could have meant a tax bill of £275,000.

But in a last-minute amendment the government has agreed to relax the rules for people who save in money-purchase company schemes or personal pensions. They may be able to avoid the charge even if their fund breaches the official cap.

Pensions experts estimate that you could avoid the charge with a fund of up to £2.3m in the first year. By 2010, when the official cap will have risen to £1.8m,